Governing the Environment

Governing the Environment

Salient Institutional Issues

New Horizons in Environmental Economics series

Edited by Albert Breton, Giorgio Brosio, Silvana Dalmazzone and Giovanna Garrone

Environmental policy, focusing on the control of pollution and on over-exploitation, easily overlooks the extensive range of interconnections between economic activities and natural systems. In this timely book, a number of specialists examine how crucial aspects of complex environmental problems and policy can be dealt with in decentralized governmental systems.

Chapter 8: Environmental Federalism with Regards to Accidental Pollution

Klaas T. van ’t Veld and Jason F. Shogren

Subjects: economics and finance, environmental economics, environment, environmental economics


Klaas T. van ’t Veld and Jason F. Shogren 1 INTRODUCTION The social goal of environmental protection is to reduce risks to humans and the environment. Governments and private citizens invest scarce resources to reduce risks to life and limb for people and to reduce risk to ecosystem services and biological diversity. Doing so creates opportunity costs, since public and private resources have many competing uses, for health care, education and so on. Because of these costs, a society must confront the reality that a zero-risk society is a noble yet unattainable goal. Rather, putting in place effective environmental regulation requires weighing the pros and cons of alternative institutional frameworks designed at different levels of government, all aiming to cost-effectively reduce risk. This is the purview of environmental federalism – to discover the appropriate balance between federal and local control. In the United States, for example, the institutional framework for riskreduction regulations is provided by a federalist system and a representative democracy. The task of controlling environmental risk is divided between the federal and state levels of government, whereby the federal government can assign or remove duties and responsibilities from the subordinate state governments. Beginning in the 1970s, US policy towards environmental risk became more centralized, for three reasons. First, federal regulation would, it was thought, prevent an environmental risk ‘race to the bottom’, as states lowered emission standards to attract new businesses. Second, it would account for interstate externalities that individual states would otherwise ignore. And third, it would rectify...

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